MONTREAL — When the Quebec government took a 10% stake in Pétrolia Inc. last year, its chief executive said he expected the move would open doors for the junior exploration company in its bid to become the province’s first major oil producer.
He definitely wasn’t expecting a group of city councillors in Gaspé, population: 15,163, to ruin the party.
Pétrolia was surprised to learn on Thursday that the municipality in December voted in new rules banning oil drilling in its proximity, saying it intends to protect its drinking water supply. The company, which has exploration permits validated by the provincial government, was set to begin drilling on its Haldimand site near Gaspé sometime next week.
We believe the city’s move is absolutely illegal
Whether it will push ahead is unclear. Pétrolia shares fell 4% to $0.99 on the Toronto Venture Exchange Friday, roughly half its 52-week high of $1.83.
“We believe the city’s move is absolutely illegal,” company CEO André Proulx said in an interview Friday, adding that Pétrolia is continuing its work on the site at the moment and has sought independent legal advice on the matter.
Gaspé mayor François Roussy is expected to hold a news conference Monday to explain the city’s actions. His staff did not return calls Friday.
The development highlights the confusion that has reigned in Quebec’s nascent oil and gas industry in recent years as companies seek to reassure a skeptical public and win over lawmakers who’ve provided mixed messages on supporting development. Most of the controversy has centered on so-called fracking drilling techniques, but even conventional drilling plans like the Haldimand project have been caught up in turmoil as Quebecers wrestle over questions of safety and how much should be due to local communities.
Under its new rules, Gaspé prohibits anyone from introducing into the ground “any substance that could alter the quality of underground or surface water” earmarked for human or animal consumption within 10 kilometres from a municipal surface water supply site. Pétrolia’s drilling pads are about 5 km away from the city in forested areas. Like other oil companies, it uses chemicals in its drilling process.
Quebec’s minister in charge of regions, Gaétan Lelièvre, said he has mandated lawyers acting for the province’s municipal affairs department to provide an opinion on the validity of Gaspé’s new rules. He said the matter could end up before the courts.
“There are very few such regulations that have been adopted,” Mr. Lelièvre told Radio Canada. “There’s very little jurisprudence.”
Pétrolia’s Haldimand project is a horizontal drilling play with an estimated 7.7 million barrels of recoverable oil over a surface area of about nine square kilometres The company had mandated Quebec’s INRS University to monitor its drilling on the site for any impact on local groundwater.
On its website, the company addresses concerns the project is so close to a population centre, saying government regulations allow it to set up 100 metres from a house. Its Well No.4 is 350 metres away from the nearest home.
“All over the world, there are wells located in the middle of cities,” the website states. “If these wells are possible, it’s because the risk is very low.”
Pétrolia is the largest landholder of petroleum rights in Quebec, with title to 15,000 square kilometres. It is aiming to produce 5% of the province’s oil needs by 2014, representing some 20,000 barrels per day.
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